Build America Bonds

摘要

Build America Bonds (BAB) -- a new and federally subsidized form of municipal financing -- assist state and local governments to finance capital projects. Created as part of the 2009 American Recovery and Reinvestment Act, BABs were first used by the University of Virginia in April 2009. By the end of that year, some $63.4 billion in BABs had been issued. Unlike traditional municipal bonds, which pay interest that is exempt from federal income taxation, the interest on BABs is taxable. What makes them attractive to municipal issuers is that the federal government subsidizes 35 percent of the interest. For example, if a state or city issues a bond that pays 5 percent interest, it pays only 3.25 percent -- the balance, 1.75 percent, is paid by the federal government. The federal subsidy lasts for the life of the bond, although BABs can only be issued in 2009 and 2010.